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Multi Family Commercial Mortgage Basics

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This 15 slide presentation illustrates the basics of a multi family / investment property commercial mortgage loan. For more information, or to discuss a specific property, please call Commercial Funding Network in Niskayuna New York at 800-503-1972.

Published in: Economy & Finance
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Multi Family Commercial Mortgage Basics

  1. 1. Multifamily Apartment Building Financing Prepared and Presented by: Daniel G. Alcorn Commercial Funding Network, Inc. 518-346-2115November 29, 2012 commercialfundingnetwork.com 1
  2. 2. • Formed in 1999 by bankingexecutives with experience datingto the ’70s.• 1999 to 2003 - Located inVermont•2003 - Relocated company toNiskayuna, New York. Daniel G. Alcorn, company founder and President, served from 1984 to 1998 as Senior Vice President of VT based Chittenden Bank.November 29, 2012 commercialfundingnetwork.com 2
  3. 3. Commercial Real Estate Finance Multifamily Apartment Building Financing • Who lends money on income producing properties? • Are all multi family properties the same? • Underwriting the three “C’s”November 29, 2012 commercialfundingnetwork.com 3
  4. 4. Multifamily Apartment Building Financing Who lends money on income producing properties? • Banks • Savings Institutions • Credit Unions • Commercial Lenders • Insurance Companies • Pension and Retirement Funds • Note and Mortgage Buyers (purchase mortgages) • Self Directed IRA and Roth IRA • Private “hard money” lenders • Friends and Family membersNovember 29, 2012 commercialfundingnetwork.com 4
  5. 5. Multifamily Apartment Building Financing Who lends money on income producing properties? Small Business Administration 504 Requires meeting job creation, community development or public policy goals 10-20% Equity SBDC makes SBA guaranteed loan up to 40% 50% lender, secured by 1st position Long term fixed rate financing Removes uncertainty of balloon refinancingNovember 29, 2012 commercialfundingnetwork.com 5
  6. 6. Multifamily Apartment Building Financing Are all multi family properties the same? Do some lenders prefer certain properties? • Loan Size and Cash Out (refi) • Owner Occupied vs. Investor • Zip Code: 25,000 population and / or within range of metro location • Number of Rental Units • Minimum 3 (stated income) • Minimum 5 (conventional) • Nature of Rental Units • monthly vs. lease contract • rooming house • square footage / unitNovember 29, 2012 commercialfundingnetwork.com 6
  7. 7. Multifamily Apartment Building Financing Underwriting the “ three C’s” • 1 - Credit Rating • 2 - Collateral • 3 - Capacity / Cash FlowNovember 29, 2012 commercialfundingnetwork.com 7
  8. 8. Multifamily Apartment Building Financing 1 - Credit Rating • FICO Credit Score • Revolving Debt Balance Credit Line Pct Used / Available • DTI – Owner’s Personal Debt to Income RatioNovember 29, 2012 commercialfundingnetwork.com 8
  9. 9. Multifamily Apartment Building Financing 2 - Collateral • Sales Comparison Method • Market Approach • Recent Sales • Similar Properties • Income Capitalization Method • Discounting the value of all future net income • Loan To Value • Private lenders 60 to 65% • Normal 70 to 75%November 29, 2012 commercialfundingnetwork.com 9
  10. 10. Multifamily Apartment Building Financing 3 – Capacity / Cash Flow • Full Documentation • 2 years Business Tax Filings • 2 years Personal Tax Filings • Interim Income Statement and Bank Statements • Limited / Stated Income • Cash Flow from investment property, owner occupied business and / or personalNovember 29, 2012 commercialfundingnetwork.com 10
  11. 11. Multifamily Apartment Building Financing 3 – Capacity / Cash Flow• Full Documentation • 2 years Business Tax Filings • Form 1120 or 1065 • Net Income • + depreciation • + interest expense • + amortization • = cash available • Debt Service • Existing P&I payments • Existing lease payments • Proposed payments • Coverage Ratio 1.20 : 1.00 • Cash : Debt Service November 29, 2012 commercialfundingnetwork.com 11
  12. 12. Multifamily Apartment Building Financing 3 – Capacity / Cash Flow 1. List each tenant with unit rent and square footage 2. Determine gross monthly income 3. Subtract actual or assumed vacancy factor 4. Equals Adjusted or Effective Gross IncomeNovember 29, 2012 commercialfundingnetwork.com 12
  13. 13. Multifamily Apartment Building Financing 3 – Capacity / Cash Flow From Adjusted / Effective Gross Income Subtract Actual Property Expenses Real Estate Taxes Property Insurance Water / Sewer Trash Removal Seasonal Snowplowing / Landscaping Subtract Assumed or Actual Property Expenses Replacement Reserve Repairs / Maintenance Janitorial / Third Party Management Equals Net Operating IncomeNovember 29, 2012 commercialfundingnetwork.com 13
  14. 14. Multifamily Apartment Building Financing example: Net Operating Income $26,690 26,690 / 1.20 DSCR = 22,242 annual P&I payments $1853.47 monthly $1853.47 monthly 8% interest rate 20 year term $221,590 mortgageQuick Test:Is an investor interested in earning 10%?(If so, the $26,690 net income is 10% of $____________.)November 29, 2012 commercialfundingnetwork.com 14
  15. 15. Multifamily Apartment Building Financing Daniel G. Alcorn Commercial Funding Network, Inc. 518-346-2115 w 212-658-9003 fNovember 29, 2012 commercialfundingnetwork.com 15

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